Educational Articles

Performance of the Model Portfolios: April, 2012

Charles Clark
| May 22, 2012

What follows is a review of the performances of Value Line’s four Model Portfolios for the month of April. The effects of recent market action and any changes to the Model Portfolios’ respective holdings are found in each week’s Selection & Opinion (free sample here). Portfolios I, II, and III share a common benchmark, the S&P 500 Index (adjusted for dividends), which declined 0.6% in April. Although Portfolios I and II each outdistanced the S&P 500 Index, only Portfolio II ended up on the plus side for the month. Portfolio III found the going difficult in April, posting its first red ink in four months. Meanwhile, Portfolio IV was able to record a modest increase in April, surpassing the performance of its benchmark, the Mergent Dividend Achievers (U.S. Broad), which declined 0.2%. (Read the description of each portfolio’s general investment strategy.)

Portfolio I reported a loss of 0.4% for April, just ahead of its S&P 500 benchmark. Market support for the group’s holdings was mixed, at best, during the month, with 12 of our 20 positions declining in value. Of these, our stakes in the Trucking and Telecom Services industries, along with one of our positions in the Auto Parts business, weighed heaviest on the Portfolio’s performance. That is not to say there were not some bright spots. Indeed, our stake in the Railroad business and one of our holdings in the Metal Fabricating sector rose sharply, with both recovering nicely from less-than-stellar performances in March. There was one trade in April, wherein we exchanged our position in Mattel (MAT) stock, for a stake in the Heavy Truck & Equipment business. The trade was made at a small profit.

Portfolio II recorded a modest return of 0.1% for the month of April. Like Portfolio I, investor support for the stocks held in Portfolio II was mixed during the month. However, given the more conservative nature of the portfolio’s composition, the swings in the individual securities were less pronounced, on average. Still, our stake in the Environmental industry took it on the chin, following an uninspiring earnings report for the first quarter. Nonetheless, there were more gainers than losers in April, with our holdings in the Food Processing, Telecom Services, and the Railroad industries being particularly notable. There was one trade in April. We sold our holdings in Molex (MOLX) shares and purchased a stake in a member of the Diversified group. In terms of profit or loss, the trade was a wash.

Portfolio III posted a loss of 3.5% in April. The portfolio found support for its holdings particularly difficult to find, with only its stake in the Recreation sector and one of its positions in the Oilfield Services/Equipment business showing notable gains for the month. Meanwhile, it was its holding in the Restaurant industry, which was pressured due to profit taking in April, and one of its stakes in the Auto Parts sector, which declined sharply in the wake of the release of its first-quarter results as the month ended, that produced the most pain. There were no trades in April. Nonetheless, we remain on watch for stocks of well-managed companies whose longer-term prospects are not fully appreciated by the market.

Finally, Portfolio IV registered a gain of 0.4% in April, nicely ahead of its Mergent Dividend Achievers benchmark. Although the portfolio got a bit of a rough start to 2012, the changes made in the last couple of months to bring greater diversification to the fold seems to be having the desired effect. On point, the portfolio enjoyed respectable support for most its holdings, underscoring the value investors tend to place on high-yielding stocks in times of higher-then-normal market uncertainty. Indeed, of the 20 positions held at the end of April, only two showed loses of note, those being the stakes in the Telecom Utility and the Paper/Forest Products industries. There was one trade in April. Coal producer Alliance Resource (ARLP) was sold at a handsome profit and replaced by a member of the Environmental industry. As it stands now, Portfolio IV should remain of interest to investors focused on dividend income.

The Model Portfolios have each moved forward in the first four months of 2012. However, of the four, only Portfolio I remains ahead of its market benchmark. Nonetheless, Portfolio II held its ground in April, and its conservative composition should help cushion the volatility currently roiling the stock market. Meanwhile, Portfolio III, though it fell behind its S&P 500 benchmark in April, continues to be well-positioned for the long term, in keeping with its performance objective. Finally, Portfolio IV seems to have regained its footing, and made up ground in April, closing the gap with its Mergent Achievers benchmark. At this writing in mid-May, investors are finding the ongoing situation in Europe increasingly worrisome, and the major market averages have been on a decline since the beginning of the month, suggesting that next few weeks may not be very pleasant, either. That said, the Model Portfolios each have a unique performance objective, so they should continue to appeal to a range of investors with varying appetites for risk and return desiring exposure to the equity markets. Alternatively, the Model Portfolios can serve as a source of some of our best investment ideas.

As of this article’s writing, the author did not have positions in any of the companies mentioned.